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Analysis 

During the week under review, secondary market activities for FGN bonds were relatively stable and low compared to the previous week. In our opinion, this is a result of market expectation of the release of the FGN bonds second quarter issuance calendar by the Debt Management Office of Nigeria (DMO).

However there was increased liquidity in the system due to the maturity of circa N98.00 billion worth of OMO bills and the injection of N106 billion from the excess crude account. We are equally inclined to note that this liquidity brought down the interbank rates. On another note, the Treasury bills market was active on the short and medium end as traders took more positions in response to the liquidity in the system. Consequently, we observe the decline in yields at the short end of the yield curve. (fig. 2)

However, this may not persist in the week ahead in view of anticipated funding of foreign exchange transactions and treasury bills auctions. Specifically, there will be a floating of N183.65 billion worth of treasury bills with maturities of 91, 182 and 364 days, whilst there will be a maturity of N131.50 billion and N48.10 billion in treasury bills and OMO respectively.

In our further review of the market, we are inclined to highlight Diamond Bank Plc’s plans to raise circa US$200 million in bond issues, with emphasis on borrowing from multilateral institutions. Whilst we believe the bank’s strategy is aimed at improving capital ratios, we are concerned about the growing trend of domestic issuers seeking to borrow from external investors. We are of the opinion that this might not be unconnected with the current position of interest rates in the domestic bond market, which makes long term borrowing unsustainable. At present, Nigeria’s interest rate is relatively high compared to several “lower middle income” countries and the BRICS. (fig. 3)

This, in our opinion, highlights the current general policy thrust of the global economy i.e. making the choice to stimulate real growth, increase domestic production and create employment with lower interest rates against concerns over inflationary threats and exchange rate stability.

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